Premium Brands Income Fund
TSX : PBI.UN

Premium Brands Income Fund

May 08, 2009 07:00 ET

Premium Brands Income Fund Announces 2009 First Quarter Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 8, 2009) - Premium Brands Income Fund (TSX:PBI.UN), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2009.

HIGHLIGHTS

- Revenue for the quarter increased by 10.1% or $9.6 million to a record $103.9 million as compared to $94.3 million in the first quarter of 2008.

- EBITDA for the quarter was $6.3 million. Excluding unusual costs of $0.2 million for the start up of a new beef jerky production line and $0.2 million associated with the merger and capacity expansion of the Fund's Edmonton sandwich production facilities, and normalizing for the impact of the Easter holiday business falling in the second quarter of 2009 versus the first quarter of 2008, the Fund's EBITDA was approximately $6.9 million.

- The Fund's distributable cash for the rolling four quarters ended March 28, 2009 was $29.3 million as compared to declared cash distributions of $20.6 million resulting in a payout ratio of 70.5%.

- During the quarter the Fund completed the acquisition of an interest in S.J. Irvine Fine Foods Ltd. for $2.6 million consisting of $1.3 million for a 25% equity interest, $1.2 million for a promissory note and $0.1 million for transaction costs. Irvine, which started operations in January 2008, manufactures high quality processed meats for the foodservice and retail industries from a modern 40,000 square foot facility located in Saskatoon, SK.

- Also during to the quarter the Fund acquired the business and working capital assets of Multi-National Foods for approximately $1.7 million. MNF is a food trading business with sales of approximately $9 million and is based in Calgary, AB. MNF will be combined with the Fund's Worldsource global trading initiative.



SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per unit Quarter Ended
amounts) Mar 28, Mar 29,
2009 2008

Revenue 103,903 94,349
EBITDA 6,307 7,041
Earnings excluding unrealized loss (gain) on
foreign currency contracts 2,088 2,724
Earnings 2,072 3,399
Earnings per unit 0.12 0.19

Rolling Four Quarters Ended
Mar 28, Dec 31, Mar 29,
2009 2008 2008

Distributable cash 29,273 29,623 27,989
Distributable cash per unit 1.664 1.692 1.605
Declared cash distributions 20,634 20,593 20,514
Declared cash distributions per unit 1.176 1.176 1.176
Payout ratio 70.5% 69.5% 73.3%


"As expected, the first quarter of 2009 proved to be a challenging one with some of our more economically sensitive businesses experiencing the impact of a slowing economy in western Canada. Unusually poor weather conditions across the region and a later Easter season further impacted our results," said Mr. George Paleologou, President and CEO.

"Offsetting these factors were several bright spots in our business including continued organic growth within our retail grocery business in general, and our U.S. based initiatives in particular, record sales from our Worldsource global trading initiative, and solid market share gains in the institutional segment of the foodservice market.

"Looking forward, we remain optimistic about the prospects for our business and are confident that the strategies that have lead to our success over the last four years will enable us to continue to generate industry leading results despite the volatility and uncertainty associated with today's economic environment," added Mr. Paleologou.

Premium Brands owns a broad range of leading branded specialty food businesses with manufacturing and distribution facilities located in British Columbia, Alberta, Saskatchewan, Manitoba and Washington State. In addition, the Fund owns proprietary food distribution and wholesale networks through which it sells both its own products and those of third parties to approximately 25,000 customers. The Fund's family of brands includes Grimm's, Harvest, McSweeney's, Bread Garden, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan's, Centennial Foodservice and B&C Foods.



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Premium Brands Income Fund
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CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)

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Mar 28, Dec 31, Mar 29,
2009 2008 2008
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Current assets:
Cash and cash equivalents $ 1,052 $ 1,679 $ 822
Accounts receivable 31,914 35,020 29,749
Current portion of other assets 230 247 519
Inventories 53,161 44,088 43,685
Prepaid expenses 2,395 2,240 2,281
Future income taxes 87 85 74
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88,839 83,359 77,130

Capital assets 69,108 69,833 62,041
Investment in significantly influenced
company 1,307 - -
Intangible assets 40,468 41,063 40,987
Goodwill 110,853 110,769 107,789
Other assets 3,378 2,170 1,810
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$ 313,953 $ 307,194 $ 289,757
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Current liabilities:
Cheques outstanding $ 2,724 $ 1,354 $ 2,507
Bank indebtedness 9,314 9,676 9,630
Distributions payable 1,723 1,725 1,710
Accounts payable and accrued liabilities 43,660 42,472 40,640
Current portion of long-term debt 389 386 153
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57,810 55,613 54,640

Puttable interest in subsidiaries 4,311 4,224 3,624
Future income taxes 1,823 1,457 476
Long-term debt 114,756 107,067 97,189
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178,700 168,361 155,929

Non-controlling interest 1,074 1,155 1,210

Unitholders' equity:
Unitholders' capital 156,122 156,238 154,382
Accumulated earnings 54,983 52,911 35,319
Accumulated distributions declared (72,222) (67,052) (51,588)
Accumulated other comprehensive loss (4,704) (4,419) (5,495)
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134,179 137,678 132,618
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$ 313,953 $ 307,194 $ 289,757
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Premium Brands Income Fund
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CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per unit amounts)

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13 weeks 13 weeks
ended ended
Mar 28, Mar 29,
2009 2008
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Revenue $ 103,903 $ 94,349
Cost of goods sold 78,581 69,319
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Gross profit 25,322 25,030
Selling, general and administrative expenses 19,015 17,989
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6,307 7,041
Depreciation of capital assets 2,099 1,747
Interest and other financing costs 1,357 1,868
Amortization of intangible and other assets 647 492
Amortization of financing costs 54 46
Accretion of puttable interest in subsidiaries - 50
Unrealized loss (gain) on foreign currency
contracts 16 (675)
Equity in loss of significantly influenced company 73 -
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Earnings before income taxes and non-controlling
interest 2,061 3,513

Provision for future income taxes 70 62
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Earnings before non-controlling interest 1,991 3,451
Non-controlling interest - net of income taxes (81) 52
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Earnings $ 2,072 $ 3,399
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Earnings per unit
Basic and diluted $ 0.12 $ 0.19

Weighted average units outstanding 17,585 17,444


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Premium Brands Income Fund
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)

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13 weeks 13 weeks
ended ended
Mar 28, Mar 29,
2009 2008
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Cash flows from operating activities:
Earnings before non-controlling interest $ 1,991 $ 3,451
Items not involving cash:
Depreciation of capital assets 2,099 1,747
Amortization of intangible assets 646 490
Amortization of other assets 1 2
Amortization of financing costs 54 46
Accretion of puttable interest in subsidiaries - 50
Loss on sale of assets 6 3
Restricted Trust Unit Plan accrual 95 82
Long-term incentive plan accrual - 50
Accrued interest income (57) (12)
Unrealized loss (gain) on foreign currency contracts 16 (675)
Equity in loss of significantly influenced company 73 -
Future income taxes 70 62
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4,994 5,296
Change in non-cash working capital (3,406) 959
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1,588 6,255
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Cash flows from financing activities:
Long-term debt - net change 7,474 (13)
Bank indebtedness and cheques outstanding 1,008 1,739
Purchase of units under normal course issuer bid (115) -
Distributions paid to unitholders (5,170) (5,129)
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3,197 (3,403)
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Cash flows from investing activities:
Collection of notes receivable 77 425
Net proceeds from sales of assets 9 3
Capital asset additions (1,210) (3,652)
Business acquisitions (1,681) -
Investment in significantly influenced company (1,380) -
Promissory note from significantly influenced company (1,240) -
Repayment of unit purchase loans 25 26
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(5,400) (3,198)
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Effects of exchange on cash and cash equivalents (12) 52
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Decrease in cash and cash equivalents (627) (294)
Cash and cash equivalents - beginning of period 1,679 1,116
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Cash and cash equivalents - end of period $ 1,052 $ 822
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Interest and other financing costs paid $ 1,468 $ 1,918

Net income taxes paid $ - $ -


SUPPLEMENTAL DISCLOSURE

EBITDA, distributable cash and net funded debt are not terms defined under GAAP. As a result, these terms, as defined by the Fund, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as alternatives to other earnings measures determined in accordance with GAAP. The following tables show the calculation of each of these items starting from a GAAP defined term.



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13 weeks 13 weeks
ended ended
(in thousands of dollars) Mar 28, 2009 Mar 29, 2008
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Earnings before non-controlling interest 1,991 3,451
Depreciation of capital assets 2,099 1,747
Interest and other financing costs 1,357 1,868
Amortization of intangible and other assets 647 492
Amortization of financing costs 54 46
Accretion of puttable interest in subsidiaries - 50
Unrealized (gain) loss on foreign currency contracts 16 (675)
Equity in loss of significantly influenced company 73 -
Income tax provision (recovery) 70 62
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EBITDA 6,307 7,041
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Year 13 weeks 13 weeks
ended ended ended Rolling
Dec 31, Mar 29, Mar 28, Four
(in thousands of dollars) 2008 2008 2009 Quarters
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Cash flows from operating
activities 33,912 6,255 1,588 29,245
Change in non-cash working
capital (1,464) (959) 3,406 2,951
Long-term incentive plan accrual (92) (50) - (92)
Restricted Trust Unit Plan
accrual (125) (82) (95) (138)
Payments received on notes
receivable 739 425 77 391
Maintenance capital
expenditures (2,600) (491) (411) (2,520)
Accretion of puttable interest
In subsidiaries (650) (50) - (600)
Non-controlling interest (97) (52) 81 36
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Distributable cash 29,623 4,996 4,646 29,273
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(in thousands of dollars) Mar 28, 2009 Dec 31, 2008
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Cheques outstanding 2,724 1,354
Bank indebtedness 9,314 9,676
Current portion of long-term debt 389 386
Deferred financing costs 485 534
Long-term debt 114,756 107,067
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127,668 119,017
Less cash and cash equivalents 1,052 1,679
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Net funded debt 126,616 117,338
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RESULTS OF OPERATIONS

The Fund's revenue for the first quarter of 2009 increased by 10.1% or $9.6 million to $103.9 million as compared to $94.3 million in the first quarter of 2008 due to acquisitions completed part way through 2008 and during the first quarter of 2009. The Fund's legacy businesses' revenue declined by $1.1 million in the quarter primarily due to a combination of Easter falling later in 2009, which accounted for approximately $0.6 million of the decrease, a $1.2 million decrease in sales to convenience stores and a $1.9 million decrease in sales to restaurants and hotels. The decreases in convenience store, restaurant and hotel sales were primarily due to weakening economic conditions in western Canada that resulted in lower consumer sales in these venues; and to unusually poor weather conditions across western Canada for much of the quarter. Partially offsetting these factors was $1.6 million in increased sales through its Worldsource global trading initiative and continued net organic growth of approximately $1.0 million in its legacy businesses that are focused on the traditional retail grocery channel.

The Fund's gross profit as a percentage of revenue ("gross margin") for the first quarter of 2009 decreased to 24.4% from 26.5% in the first quarter of 2008 due primarily to:

- Changes in the Fund's sales mix with lower margin foodservice sales comprising 54.3% of its sales in the first quarter of 2009 as compared to 50.0% in the first quarter of 2008. This resulted in a decrease in the Fund's gross margin of approximately 0.6 percentage points. The increase in foodservice sales was driven primarily by the acquisition of B&C Food Distributors in the third quarter of 2008.

- Changes in the Fund's sales mix resulting from the decrease in higher margin convenience store, hotel, and restaurant sales being replaced by lower margin Worldsource food trading revenue and retail distributive sales associated with its Vancouver Island operations. This resulted in a decrease in the Fund's gross margin of approximately 1.2 percentage points.

- $0.4 million in unusual production costs in the first quarter of 2009 consisting of $0.2 million for the start up of a new beef jerky production line and $0.2 million associated with the merger and capacity expansion of the Fund's Edmonton sandwich production facilities.

Selling, general and administrative expenses ("SG&A") for the first quarter of 2009 increased by $1.0 million to $19.0 million from $18.0 million in the first quarter of 2008 primarily due to acquisitions.

SG&A as a percentage of revenue for the first quarter of 2009 decreased to 18.3% from 19.1% in the first quarter of 2008 due to a variety of factors including the changes in the Fund's sales mix (described above) as the selling and marketing expenses associated with foodservice sales in general, and the Worldsource global trading initiative in particular, are generally lower than those associated with retail sales. Other factors impacting the Fund's SG&A as a percentage of revenue included lower freight and fuel costs resulting from a general decrease in energy based commodities and reduced wage costs.

The Fund's EBITDA for the first quarter of 2009 was $6.3 million. Excluding unusual costs of $0.2 million for the start up of a new beef jerky production line and $0.2 million associated with the merger and capacity expansion of the Fund's Edmonton sandwich production facilities, and normalizing for the impact of the Easter holiday business falling in the second quarter of 2009 versus the first quarter of 2008, the Fund's EBITDA was approximately $6.9 million.

Depreciation for the first quarter of 2009 increased by $0.4 million to $2.1 million from $1.7 million in the comparable 2008 period due mainly to acquisitions completed part way through 2008 and in 2009.

Interest and other financing costs for the first quarter of 2009 decreased by $0.5 million to $1.4 million from $1.9 million in the first quarter of 2008 due to a general decline in Canadian Bank of Canada over night lending rate and the corresponding favourable impact on the cost of the Fund's bank prime rate based debt.

In the first quarter of 2009 the Fund recognized a nominal loss on foreign currency contracts as a result of changes in the fair market valuation of its U.S. dollar forward purchase contracts. The Fund does not intend to liquidate these contracts, but rather uses them to stabilize the cost of its U.S. dollar denominated purchases and, in turn, its selling margins. In the first quarter of 2008 the change in the fair market value of the Fund's foreign currency contracts resulted in an unrealized gain of $0.7 million.

Segmented Information

The Fund's revenue and segment earnings by reportable segment are as follows:



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13 weeks ended 13 weeks ended
(in thousands of dollars) Mar 28, 2009 Mar 29, 2008
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Revenue:
Retail 47,489 47,151
Foodservice 56,414 47,198
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103,903 94,349
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Segment earnings (loss):
Retail 2,752 3,741
Foodservice 1,930 2,587
Corporate costs (1,121) (1,526)
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3,561 4,802
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Retail

Retail's revenue for the first quarter of 2009 increased by $0.3 million to $47.5 million as compared to $47.2 million in the first quarter of 2008. The increase was due to acquisitions, which resulted in $1.2 million in incremental revenue, and continued organic growth in the segment's businesses not selling to the convenience store channel, partially offset by a $1.2 million reduction in sales to convenience stores and an estimated $0.6 million in delayed revenue due to Easter related sales occurring in the second quarter of 2009 versus the first quarter of 2008. The decrease in sales to convenience stores was primarily due to weakening economic conditions in western Canada that resulted in lower consumer sales in these venues; and to unusually poor weather conditions across western Canada for much of the quarter.

Retail's segment earnings for the first quarter of 2009 decreased to $2.8 million from $3.7 million in the first quarter of 2008 while its segment earnings as a percentage of revenue ("segment margin") was 5.8% and 7.9% in the respective periods. The decreases in Retail's earnings and segment margin were primarily due to:

- Approximately $0.4 million in unusual production costs in the first quarter of 2009 consisting of $0.2 million for the start up of a new beef jerky production line and $0.2 million associated with the merger and capacity expansion of the Fund's Edmonton sandwich production facilities.

- Approximately $0.4 million in lost contribution margin due to lower sales of higher margin snack food products to convenience store customers.

- Approximately $0.2 million in additional amortization costs associated with its new meat snack and fresh pastry / sandwich plants.

Foodservice

Foodservice's revenue for the first quarter of 2009 increased by $9.2 million to $56.4 million from $47.2 million in the first quarter of 2008. Acquisitions accounted for $9.5 million of the increase and organic growth of its Worldsource global trading business for another $1.6 million. Partially offsetting these increases was a decrease in its core hotel and restaurant business of $1.9 million due to weakening economic conditions in western Canada that resulted in lower consumer sales in these venues; and to unusually poor weather conditions across western Canada for much of the quarter.

Foodservice's segment earnings for the first quarter of 2009 decreased to $1.9 million from $2.6 million in the first quarter of 2008 while its segment margin was 3.4% and 5.5% in the respective periods. The decreases in Foodservice's earnings and segment margin were primarily due to:

- Approximately $0.2 million in additional amortization costs due to an acceleration in the amortization period of its intangible assets.

- Approximately $0.2 in lost contribution margin due the changes in its sales mix.

- Approximately $0.2 million due to a variety of issues including cost increases on some U.S. imported concessionary products resulting from a weaker Canadian dollar and investment in a new concessionary servicing program for the 2009 summer season.

Corporate

Corporate costs decreased from $1.5 million in the first quarter of 2008 to $1.1 million in the first quarter of 2009 due to a variety of factors including reduced executive compensation resulting from the combining of the CEO and President roles after the Fund's CEO passed away in May 2008, the allocation of approximately $0.1 million in costs to the retail and foodservice segments, and $0.1 million in additional interest income from several sources including a new promissory note that formed part of the Fund's investment in S.J. Irvine Fine Foods.

FORWARD LOOKING STATEMENTS

This document includes forward looking statements with respect to the Fund, including its business operations strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations. Although management believes that the expectations reflected in such forward looking statements are reasonable and represent the Fund's internal expectations and belief as of May 7, 2009, such statements involve unknown risks and uncertainties beyond the Fund's control which may cause the Fund's actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements. Important factors that could cause actual results to differ materially from the Fund's expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Fund's sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used for the Fund's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Fund's proprietary distribution networks; (v) changes in Canadian income tax laws; (vi) changes in consumer preferences for food products; (vii) competition from other food manufacturers and distributors; (viii) new government regulations affecting the Fund's business and operations; and (ix) other factors as discussed in the Fund's Annual Information Form, which is filed electronically through SEDAR and is available online at www.sedar.com. It should be noted that this list of important factors affecting forward looking information may not be exhaustive.

Unless otherwise indicated, the forward looking information in this document is made as of May 7, 2009 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

Contact Information

  • Premium Brands Income Fund
    George Paleologou
    President and CEO
    (604) 656-3100
    or
    Premium Brands Income Fund
    Will Kalutycz
    CFO
    (604) 656-3100
    www.premiumbrandsincomefund.com